Whither Social Security?

NWRatCon · Sep 23, 2019

It's campaign season, so there are at least a half-dozen "plans" to address one of the most popular programs ever created in the United States. No longer the "third rail" of political discourse, it is a welcome topic of discussion. Why? Because it is in trouble. The current $2.9 Trillion "trust funds" will be depleted by 2035. About its 100th birthday.What the 2019 Trustees’ Report Shows About Social Security (Center Budget Priorities).

Social Security has been the greatest social insurance program in the world. I say that, not because it is the best organized or funded, but because it has kept more people out of poverty for longer. Why Social Security Is a Success, in Four Charts (New Republic). It has been in effect for 84 years, so most Americans have no concept of a world without it.

Why is it in trouble? Demographics.

the program is ...not actuarially sound. A combination of growing life expectancy, slowing population growth, and slowing wage growth have created a situation where the program is scheduled to run out of money in 2035.

Elizabeth Warren’s plan to expand Social Security, explained (Vox). So, the answers to fix it are pretty straightforward: fix the actuarial basis, cut benefits, or boost the tax base.

Since the first one smacks of a Soylent Green solution, let's concentrate on the second two. (Although one proposal, Promoting Economic Growth through Social Security Reform, does address the actuarial side of the equation by encouraging delayed applications.) Cuts have actually already been tried, unsuccessfully. The COLA formula was changed, and benefits have been delayed. Not only is this unpopular, but it hasn't fixed the problem.

There are several plans already out there, including the two I've already referenced. Half the Democratic field have proposals. [Why am I not discussing Republican plans? I haven't found any.] They should be considered, tweaked, and implemented. Editorial: Don’t delay reforms to shore up Social Security (Herald.net).

discussion and consideration of the available options should begin now. The Social Security Act should be able to celebrate its centennial in 2035 by providing fully for retired Americans, the disabled and families who have lost their primary breadwinner and by adding to the nation’s economic strength.

Like universal healthcare, Social Security can be a fundamental factor to strengthen our economy, rather than being a burden. In my view, people need to understand that.

ttwtt78640 · Sep 23, 2019

Adjusting the FICA payroll tax rate periodically (annually?) such that current annual revenues (more closely) match current annual expenses should not be overlooked as the easiest method of Social Security reform - keeping it as a "pay as you go" system. Once the "boomer bubble" passes that could mean a reduction in the FICA payroll tax rate would be possible and/or that retirement benefits would gradually go up for current workers.

JohnfrmClevelan · Sep 23, 2019

ttwtt78640 said:
Adjusting the FICA payroll tax rate periodically (annually?) such that current annual revenues (more closely) match current annual expenses should not be overlooked as the easiest method of Social Security reform - keeping it as a "pay as you go" system. Once the "boomer bubble" passes that could mean a reduction in the FICA payroll tax rate would be possible and/or that retirement benefits would gradually go up for current workers.

Or, instead of increasing taxes on the lower end (which is exactly what FICA taxes are), the government could simply decide to pay for SS out of the general fund, and let the rich take on some of the added tax burden, instead of none of the added tax burden.

Any other "fix" to SS is silly. This has always been a "who is going to pay for it, the rich or the poor?" battle, just like every other taxing/spending question. SS was created as a payroll tax on workers just to make SS more palatable to rich taxpayers in the first place; FDR reasoned that it would be harder to justify snatching away SS benefits in the future if the money came from a special SS tax. And he was right - conservatives have been trying to kill SS from Day One. And their efforts have only intensified since the distribution of income started skewing heavily in the rich's favor in 1980 or so.

Mircea · Sep 23, 2019

NWRatCon said:
Why is it in trouble? Demographics. Elizabeth Warren’s plan to expand Social Security, explained (Vox). So, the answers to fix it are pretty straightforward: fix the actuarial basis, cut benefits, or boost the tax base.

Vox & Warren lied to you as usual.

Social Security and Medicare are funded identically. It's nothing more than simple 6th Grade Math:

Revenues = # of Workers * Wages * Tax Rate

From our 6th Grade Math we know that if we increase or decrease the multipliers, then we alter the product of the multipliers.

Let's examine the lies of Vox and Pocahontas.

# of Workers: In 1940, there were 159.4 Workers for each Beneficiary. Today, there are 2.6 Workers for each Beneficiary. Since the # of Workers has declined, you have two choices:

1) you are currently short 11 Million workers. You need to get the 6.5 Million currently unemployed a job by tomorrow at 8:00 AM and then you need to start the draft, train an army, send the army overseas and kidnap 4.5 Million people, bring them back to the US and get them into jobs by a 8:00 AM tomorrow morning, and then have 0% unemployment for the next 200 years.

How realistic is that?

Not.

2) Increase Wages: Wrong Answer. Vox and Pocahontas lied. They were taking advantage of your complete ignorance about how Social Security benefits are calculated. Your monthly Social Security benefit is based on your average monthly wage for the highest 420 months of work whether you worked 420 months or not.

See how they lied? Increasing wages increases benefits, which means higher wages will do nothing, except result in greater payout.

3) Increase the FICA tax rate. That's the answer.

The Silent Generation suffered a 520% FICA tax rate increase to make sure Social Security was there for them. The Boomers endured a 72% FICA tax increase to ensure Social Security would be there for them.

Why can't Generation X-Box and Generation Y-Work handle a 29%-34% increase to make sure Social Security is there for them?

The good news is the Worker-to-Beneficiary Ratio will bottom out at 2.0 Workers for each Beneficiary, and once you increase the FICA tax from 6.2% for employer and employee to 8.0%-8.4% for employer and employee it will fund Social Security for the next 200-400 years without any further tax increases.

You should also be aware than Pocahontas is going to be facing massive legal challenges to tax Wealth.

Article I Section 9 Clause 4 requires that the Wealth Tax proposed by Pocahontas be apportioned based on the population of a State.

To demonstrate how that might work, the Wealth Tax would be 30% for everyone living in California, 28% for everyone living in Texas, 27% for everyone living in New York, 22% for everyone living in Ohio, 14% for everyone living in Kentucky, 2% for everyone living in Montana.

That's how a tax would be apportioned under the Constitution. The 13th Amendment allows the government to tax income, but not wealth, directly and everyone pays the same tax rate based on their bracket and allowable deductions and credits.

In order for Pocahontas to tax the wealth of everyone living in the US at 15%, she would need a Constitutional Amendment that allows here to do that. Otherwise, the tax would have to be apportioned by population.

ttwtt78640 · Sep 23, 2019

JohnfrmClevelan said:
Or, instead of increasing taxes on the lower end (which is exactly what FICA taxes are), the government could simply decide to pay for SS out of the general fund, and let the rich take on some of the added tax burden, instead of none of the added tax burden.

Any other "fix" to SS is silly. This has always been a "who is going to pay for it, the rich or the poor?" battle, just like every other taxing/spending question. SS was created as a payroll tax on workers just to make SS more palatable to rich taxpayers in the first place; FDR reasoned that it would be harder to justify snatching away SS benefits in the future if the money came from a special SS tax. And he was right - conservatives have been trying to kill SS from Day One. And their efforts have only intensified since the distribution of income started skewing heavily in the rich's favor in 1980 or so.

While the tax "the rich" more idea has some merit it also would muck up the idea of having SS retirement benefits be based on an individual's high 35 years of contribution levels. As you noted, if we make SS just another "safety net" entitlement program funded from general revenues then it will be more apt to be trimmed come Austerity Day.

NWRatCon · Sep 23, 2019

Mircea said:
Vox & Warren lied to you as usual.

Social Security and Medicare are funded identically. It's nothing more than simple 6th Grade Math:

Revenues = # of Workers * Wages * Tax Rate

From our 6th Grade Math we know that if we increase or decrease the multipliers, then we alter the product of the multipliers.

Let's examine the lies of Vox and Pocahontas.

# of Workers: In 1940, there were 159.4 Workers for each Beneficiary. Today, there are 2.6 Workers for each Beneficiary. Since the # of Workers has declined, you have two choices:

1) you are currently short 11 Million workers. You need to get the 6.5 Million currently unemployed a job by tomorrow at 8:00 AM and then you need to start the draft, train an army, send the army overseas and kidnap 4.5 Million people, bring them back to the US and get them into jobs by a 8:00 AM tomorrow morning, and then have 0% unemployment for the next 200 years.

How realistic is that?

Not.

2) Increase Wages: Wrong Answer. Vox and Pocahontas lied. They were taking advantage of your complete ignorance about how Social Security benefits are calculated. Your monthly Social Security benefit is based on your average monthly wage for the highest 420 months of work whether you worked 420 months or not.

See how they lied? Increasing wages increases benefits, which means higher wages will do nothing, except result in greater payout.

3) Increase the FICA tax rate. That's the answer.

The Silent Generation suffered a 520% FICA tax rate increase to make sure Social Security was there for them. The Boomers endured a 72% FICA tax increase to ensure Social Security would be there for them.

Why can't Generation X-Box and Generation Y-Work handle a 29%-34% increase to make sure Social Security is there for them?

The good news is the Worker-to-Beneficiary Ratio will bottom out at 2.0 Workers for each Beneficiary, and once you increase the FICA tax from 6.2% for employer and employee to 8.0%-8.4% for employer and employee it will fund Social Security for the next 200-400 years without any further tax increases.

You should also be aware than Pocahontas is going to be facing massive legal challenges to tax Wealth.

Article I Section 9 Clause 4 requires that the Wealth Tax proposed by Pocahontas be apportioned based on the population of a State.

To demonstrate how that might work, the Wealth Tax would be 30% for everyone living in California, 28% for everyone living in Texas, 27% for everyone living in New York, 22% for everyone living in Ohio, 14% for everyone living in Kentucky, 2% for everyone living in Montana.

That's how a tax would be apportioned under the Constitution. The 13th Amendment allows the government to tax income, but not wealth, directly and everyone pays the same tax rate based on their bracket and allowable deductions and credits.

In order for Pocahontas to tax the wealth of everyone living in the US at 15%, she would need a Constitutional Amendment that allows here to do that. Otherwise, the tax would have to be apportioned by population.

I think you need some remedial math, my friend. 6th grade math apparently doesn't work for you. Then I'd suggest a course in logic, civics and civility.

NWRatCon · Sep 23, 2019

If Social Security is a valuable program for the citizenry and the economy (It is), then it should be a priority for repair. It hasn't been. There are, literally, 3 or 4 very simple fixes that would keep it solvent indefinitely. The first is simply removing the income limit for taxation. Warren's suggestion to include a tax on investment income would also make sense, since that income currently has favored tax status and a significant portion of the population avoids FICA taxes on the majority of their income.

In many respects, the issue is a philosophical one - what is the purpose of social insurance? What should its role be in the economy? One proposal I mentioned in the OP addressed this question:

Pro-Growth Social Security Reform framework, which would both shore up Social Security and grow the economy at a faster pace. Our framework includes four parts:

1. Promote delayed retirement and productive aging by increasing Social Security’s retirement ages while insulating vulnerable workers with an Age 62 Poverty Protection Benefit (62-PPB) to boost benefits for low-income workers.
2. Reward work at all ages by counting all years of work toward benefits and by calculating benefits based on each year’s earnings rather than average 35-year lifetime earnings.
3. Increase savings and investment by automatically enrolling workers in add-on “Supplemental Retirement Accounts” (SRAs) and placing a share of wages, on top of the payroll tax, in those SRAs unless a worker chooses to opt out.
4. Improve certainty and sustainability by making Social Security sustainably solvent through a mix of progressive revenue and benefit adjustments.

I don't necessarily agree with the approach, but these are ideas to be considered.

NWRatCon · Sep 23, 2019

I think I failed to include this link in earlier posts:Policy Basics: Top Ten Facts about Social Security

Drawdown · Sep 23, 2019

ttwtt78640 said:
Adjusting the FICA payroll tax rate periodically (annually?) such that current annual revenues (more closely) match current annual expenses should not be overlooked as the easiest method of Social Security reform - keeping it as a "pay as you go" system. Once the "boomer bubble" passes that could mean a reduction in the FICA payroll tax rate would be possible and/or that retirement benefits would gradually go up for current workers.

That is the only viable option. Social Security has to be self-funding by law. We cannot reallocate money from the general budget into it under current law.

ttwtt78640 · Sep 23, 2019

Drawdown said:
That is the only viable option. Social Security has to be self-funding by law. We cannot reallocate money from the general budget into it under current law.

It seems that current law must be changed to prevent SS from becoming a far less meaningful retirement supplement. Some wish to remove the income cap for FICA "contributions" while capping the maximum individual SS retirement/disability benefit. I agree that using general revenue funds is a very bad idea - it basically amounts to borrowing simply to cover current consumption.

Drawdown · Sep 23, 2019

ttwtt78640 said:
It seems that current law must be changed to prevent SS from becoming a far less meaningful retirement supplement. Some wish to remove the income cap for FICA "contributions" while capping the maximum individual SS retirement/disability benefit. I agree that using general revenue funds is a very bad idea - it basically amounts to borrowing simply to cover current consumption.

I personally think it should be means tested, but ultimately the worst thing we could do it do away with it in favor of 401K type plans. We have enough of a problem with stock inflation as is without dumping everybody's Social Security into the market.

AliHajiSheik · Sep 23, 2019

Drawdown said:
I personally think it should be means tested, but ultimately the worst thing we could do it do away with it in favor of 401K type plans. We have enough of a problem with stock inflation as is without dumping everybody's Social Security into the market.

Why do you think that SS isn’t means tested?

Sent from my iPhone using Tapatalk

ttwtt78640 · Sep 23, 2019

Drawdown said:
I personally think it should be means tested, but ultimately the worst thing we could do it do away with it in favor of 401K type plans. We have enough of a problem with stock inflation as is without dumping everybody's Social Security into the market.

SS is the direct opposite of means tested - the more that an individual "contributes" in FICA taxes then the higher their retirement (supplement) benefit will be. For example, since I worked for more years and at higher wages (paid more FICA "contributions") than my girlfriend did, my SS retirement benefit is more than double what hers is.

To do the opposite (making SS "means tested") would only discourage folks from saving for retirement (or perhaps working more years) - the less that one personally saves for retirement then the more they would get from a "means tested" SS benefit.

Bullseye · Sep 23, 2019

JohnfrmClevelan said:
Or, instead of increasing taxes on the lower end (which is exactly what FICA taxes are), the government could simply decide to pay for SS out of the general fund, and let the rich take on some of the added tax burden, instead of none of the added tax burden.

Any other "fix" to SS is silly. This has always been a "who is going to pay for it, the rich or the poor?" battle, just like every other taxing/spending question. SS was created as a payroll tax on workers just to make SS more palatable to rich taxpayers in the first place; FDR reasoned that it would be harder to justify snatching away SS benefits in the future if the money came from a special SS tax. And he was right - conservatives have been trying to kill SS from Day One. And their efforts have only intensified since the distribution of income started skewing heavily in the rich's favor in 1980 or so.

The "general fund" is already running close t a trillion dollar annual deficit. You wanna increase that?

Bullseye · Sep 23, 2019

ttwtt78640 said:
SS is the direct opposite of means tested - the more that an individual "contributes" in FICA taxes then the higher their retirement (supplement) benefit will be. For example, since I worked for more years and at higher wages (paid more FICA "contributions") than my girlfriend did, my SS retirement benefit is more than double what hers is.

To do the opposite (making SS "means tested") would only discourage folks from saving for retirement (or perhaps working more years) - the less that one personally saves for retirement then the more they would get from a "means tested" SS benefit.

The formula for determining benefits is weighed towards lower incomes.

ttwtt78640 · Sep 23, 2019

Bullseye said:
The formula for determining benefits is weighed towards lower incomes.

That is true to some extent but SS is not means tested (except for federal income taxation). Medicare is also weighted towards lower incomes but some of that disappears with fixed annual premiums.

Bullseye · Sep 23, 2019

ttwtt78640 said:
That is true to some extent but SS is not means tested (except for federal income taxation). Medicare is also weighted towards lower incomes but some of that disappears with fixed annual premiums.

Isn't there also a cap on max benefit?

ttwtt78640 · Sep 23, 2019

Bullseye said:
Isn't there also a cap on max benefit?

Yes, but that is attained via a cap on the max annual FICA "contribution" (currently $132,900/year for a max annual FICA "contribution" of $16,479.60). I only hit that level for a few years in the 1980s when I was given a temporary 20% salary increase (remote duty pay?) while working in Guam on a US Navy contract.

Drawdown · Sep 23, 2019

ttwtt78640 said:
SS is the direct opposite of means tested - the more that an individual "contributes" in FICA taxes then the higher their retirement (supplement) benefit will be. For example, since I worked for more years and at higher wages (paid more FICA "contributions") than my girlfriend did, my SS retirement benefit is more than double what hers is.

To do the opposite (making SS "means tested") would only discourage folks from saving for retirement (or perhaps working more years) - the less that one personally saves for retirement then the more they would get from a "means tested" SS benefit.

Not exactly as they just look at your highest income decade in determining your benefits, but if you put a ring on that finger and then croak in 20 years, she will be able to draw your check instead of hers.

I disagree though about the effect. retirement plans are more attractive now than ever before simply because you can lifeboat from work a decade earlier if you build up your 401K to bridge you until you get that that retirement/compulsory draw down

ttwtt78640 · Sep 23, 2019

Drawdown said:
Not exactly as they just look at your highest income decade in determining your benefits, but if you put a ring on that finger and then croak in 20 years, she will be able to draw your check instead of hers.

I disagree though about the effect. retirement plans are more attractive now than ever before simply because you can lifeboat from work a decade earlier if you build up your 401K to bridge you until you get that that retirement/compulsory draw down

That bolded above is exactly why we are not married (after living together for over 13 years) - if her ex (who is 9 years older than I am) dies she gets that same surviving spouse SS windfall. If I am ever diagnosed with a terminal illness then perhaps then she would marry me.

Drawdown · Sep 23, 2019

ttwtt78640 said:
That bolded above is exactly why we are not married (after living together for over 13 years) - if her ex (who is 9 years older than I am) dies she gets that same surviving spouse SS windfall. If I am ever diagnosed with a terminal illness then perhaps then she would marry me.

I hope her ex doesn't have a live in who will get screwed by this. One of my sister-in-laws great aunts made out like a bandit because she never got divorced from her hubby of 6 months when she was 18. He then went to work for the railroad, lived with the same woman for like 40 plus years and when he died, the great aunt got his SS and his pension.

Checkerboard Strangler · Sep 23, 2019

[FONT=&quot]First thing, adjust the income cap. Actuaries make adjustments like to insurance funds all the time.[/FONT]

Hari Seldon · Sep 23, 2019

Checkerboard Strangler said:
[FONT="]First thing, adjust the income cap. Actuaries make adjustments like to insurance funds all the time.[/FONT]

We have been lowering the taxes for the wealthy for a while now including the last fiasco. When the highest rate was 90% it was necessary. Time to change the trend.

ttwtt78640 · Sep 23, 2019

Drawdown said:
I hope her ex doesn't have a live in who will get screwed by this. One of my sister-in-laws great aunts made out like a bandit because she never got divorced from her hubby of 6 months when she was 18. He then went to work for the railroad, lived with the same woman for like 40 plus years and when he died, the great aunt got his SS and his pension.

For SS surviving ex-spouse benefits you must have been married for 10 years (and she was). BTW, SS benefits are based on the high 35 years (420 months) of FICA "contributions" and any year with none counts as a zero.

JohnfrmClevelan · Sep 23, 2019

Bullseye said:
The "general fund" is already running close t a trillion dollar annual deficit. You wanna increase that?

Why not? Can you point to any damage the deficit does to the economy?

No? Didn't think so.

Whither Social Security?

Eco**Social Marketeer

Sometimes wrong

Sometimes wrong

Eco**Social Marketeer

Eco**Social Marketeer

Eco**Social Marketeer

Sometimes wrong

Sometimes wrong

All Lives Matter or No Lives Matter

All Lives Matter or No Lives Matter

Sometimes wrong

All Lives Matter or No Lives Matter

Sometimes wrong

Sometimes wrong

Make Video Horizontal Again

Stable Genius

Sometimes wrong